Joined: 05 Aug 2006
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Tue Jan 29, 2008 12:30 pm Reply with quote
Tuesday January 29, 12:15 PM
UK's FSA warns of trouble ahead as business models come under strain
LONDON (Thomson Financial) - The embattled regulator of the UK's financial system has warned that another Northern Rock (LSE: NRK.L - news) crisis is possible amid deteriorating credit conditions and drooping confidence levels.
In its 2008 Financial Risk Outlook, the Financial Services Authority said the credit crunch may have exposed the business models of some firms as being 'potentially unsuitable' in more stressed financial conditions where, for example, access to liquidity is restricted.
'This has put pressure on measures of prudential risk for some firms, such as capital and liquidity,' it said.
Indeed the stress is already being felt. 'Existing business models of some financial institutions are under strain as a result of adverse market conditions,' it added.
The FSA has been widely blamed, most notably by the influential Treasury Select Committee, for its failure to act swiftly to prevent the crisis at Northern Rock, which led to the first run on a UK bank since Victorian times. The cross party group of MPs said the FSA had 'systematically failed in its regulatory duty to ensure that Northern Rock would not pose a systemic risk'.
Elsewhere, the FSA said the restricted availability of certain funding sources could force some lenders to cut their exposure to the housing market to the detriment of the wider economy.
'The restricted availability of certain funding sources could force some lenders to shrink their mortgage businesses, which would have direct consequences for the real economy and consumers,' it said.
The financial market dislocation that began in the second half of 2007 has resulted in an increase in uncertainty and risk aversion, which pose risks to the UK economic outlook, the FSA said.
'This, particularly if house-price growth softens or even turns negative, could result in lower consumer confidence, which could put further pressure on domestic demand,' it added.
The lower supply of secured credit and tighter lending criteria for mortgages could hit households hard, the FSA said.
'We therefore expect to see a growing number of consumers experiencing debt-repayment problems in 2008,' it added.
The FSA also warned that financial markets could be 'more vulnerable' to external shocks and that the impact of these shocks on companies 'could be bigger' than it was in previous years.
'The operating environment for firms remains difficult and it is likely that these conditions will persist, particularly if investor confidence in some markets and financial institutions remains low,' the FSA said.
'It is likely that liquidity conditions will remain tighter and that financial markets will not return to the conditions market participants have got used to in recent years,' it added.
The FSA also conceded that faith in its ability to regulate the financial system has taken a knock and that it could get worse.
'Market participants and consumers may lose confidence in financial institutions and in the authorities' ability to safeguard the financial system,' the FSA noted.
But the FSA also sought to disperse some of the blame.
'The events surrounding Northern Rock demonstrated that consumers do not have confidence in the current framework for deposit protection,' it said.
'The Chancellor's guarantee of Northern Rock deposits is a short-term solution to this problem,' it said, even though it was the same guarantee which finally ended the run on Northern Rock.
Joined: 17 May 2009
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Sun May 17, 2009 1:53 pm Reply with quote
put your life saving in RBS there going up and gonna hit over 70 p by xmas i promise you. i just bought 120,000
Joined: 28 Jun 2010
Location: USAView user's profile
Mon Jun 28, 2010 11:42 am Reply with quote
Unfortunately the credit crunch looks like it is here to stay for the foreseeable future. But there are many ways in which you can battle the effects